300. Careful, the Chancellor will be watching.
(Mr Crosby) In the financial services marketplace,
I do not think it does, because the conclusion of the Competition
Commission came at the end of a substantial review by Cruickshank
of competition in the banking markets and the Competition Commission
was addressing the one area where Cruickshank's conclusion was
that things would not move fast enough. In the universe that I
am qualified to comment on, it does not raise precedents.

301. Could you just clarify why you disagree
with the Chancellor imposing price control?
(Mr Crosby) In the specific proposal here, what you
will see in the scale of the investment that we are making as
an organisation this year to enter the small business market is
that we are hiring 1,500 people this year and we shall not in
the first year achieve revenues to offset those costs. It is a
big investment but we shall get it back in due course; we would
not be doing it otherwise. The fact of the matter is that paying
interest on business accounts was a source of marketing differentiation
for us, a way of highlighting with customers, "Come to us
because we are really different, we are fair minded, you can trust
us in this area". We have lots of other things but it is
unhelpful in that respect because it does restrict that particular
point of difference.

302. What do you think of Mr Harley's suggestionI
am inferring what you said, Mr Harleythat you could have
price controls for three years and then you revisit it? Is that
going to work? Unpicking price controls.
(Mr Crosby) It does not help me because I am not talking
20 years; I am keen to make an impact here within five years and
certainly five to ten. Three years is an awfully long time in
terms of our ambitions.

303. I have heard around Whitehall that this
does in fact set a dangerous precedent in relation to SMEs because
it might be extended to personal bank current accounts, in other
words the Government and the authorities might seek to impose
price controls on personal current account business. Surely that
must worry you?
(Mr Crosby) For us it would be unhelpful as one of
the leading players offering interest on personal current accounts.
I should be very surprised if they did, given the 20 to 25 per
cent market share of new accounts which we took last year. The
fact that we really are having an impact on the Big Four is not
just the number of accounts that we took, it is the nature of
the accounts. In the current account market, we were taking persistently
the higher balance customers from which they draw their revenues
to the greatest extent. From our point of view, in just one year,
our balances on our current account business grew by 80 per cent.
So that market is moving and I am sure you have similar experience
and statistics. That market is moving really quickly, so it would
be really odd for the Competition Commission to step in and make
any recommendation there.

304. May I ask Mr Harley and Mr Targett? You
do not think the Competition Commission, inspired by the Government,
would seek to intervene with price controls in areas outside SME
banking, that is personal banking. You do not think that is a
runner at all. You are absolutely relaxed about that, are you?
(Mr Targett) Having only been here for a couple of
months, I am not sure I can give you an answer to that, as to
whether they would or they would not. I think sometimes price
controls can be unhelpful in terms of deterring entrants to the
market and it does not help competition. If you look at a lot
of small businesses, price is number seven out of eight in terms
of their key priorities. There are many things which drive choice
rather than price and price can sometimes just be the one instrument
that people talk about, but it is not the key determinant. Things
like access and relationship management and helping people.

305. I was really asking about how you interpret
future Government action.
(Mr Targett) I do not know.
(Mr Harley) I certainly see no sign that the Government
is intent on intervening in the way you describe and I do not
think it is necessary either in the current market. In the business
market, it seems to me like a short-term remedy as opposed to
a long-term solution. A long-term solution involves competition.

Chairman: You can be reassured that we
do not know what is in the Government's mind as well. We are sticking
to our inquiry.

Mr Beard

306. What are the chief obstacles people have
experienced in transferring their accounts from one of the Big
Four into your separate banks?
(Mr Harley) On the business side?

307. Yes.
(Mr Harley) The issue primarily is this lack of portability
of their credit records which leaves them feeling rather nervous.
If they leave behind a supplier of ten or 20 years' standing,
they have no track record to take to a new supplier. That is the
biggest issue.

308. That is the biggest one. Is that true all
round?
(Mr Targett) Yes.
(Mr Crosby) Yes.

309. What is your experience of them actually
getting within the five weeks of the banking code for the transfer?
(Mr Harley) Mixed. It varies from bank to bank and
from week to week almost. It is certainly not a standard which
is being delivered consistently.

310. It is not being delivered consistently.
(Mr Harley) No.

311. What has been your experience?
(Mr Crosby) By comparison to the performance on personal
accounts, where we have the automated switching system now, there
is a very, very big difference. It is not obvious to us. We have
an automated switching system for personal accounts which includes
all the Big Four. It is not obvious why that cannot be extended
at this stage to small businesses. It is not as important as the
credit referencing element, credit transfer and credit referencing,
but it is still a key element.
(Mr Targett) We do not see that as a problem. The
standard is not met 100 per cent of the time, but from our side,
when we are switching an account to a competitor, we make it a
standard that we do.

312. Do you feel that there is a policy amongst
the Big Four of putting up a rearguard action to dissuade people
from transferring their accounts?
(Mr Crosby) I do not think I would be being critical
in suggestingand I would not intend it as a criticismthat
if any customer came to us saying that they wanted to move we
would help and accommodate that, but we would also ask them whether
there was anything we could do or make good that would encourage
them to stay with us. I would expect them to do something similar.
The key thing is not trying to keep customers, it is being helpful
to customers who have made their mind up.

313. That is normal competitive practice. I
am talking about prolonging the period it takes, not transferring
standing orders or whatever.
(Mr Crosby) I think the fact of the matter is that
three years ago in personal current accounts the standards of
help and assistance in making these transfers happen were dramatically
lower than they are today in personal current accounts. My point
is that there is real scope for improving it in the business area.

314. Mr Harley, what are your experiences?
(Mr Harley) I do not see any signs of there being
any policy. It is simply patchy execution which is the issue.

Chairman

315. So it is all sweetness and light between
the different banks. There is no problem. You all get on famously.
(Mr Crosby) I would not want to give that impression.
I am not trying to.

316. That is fine. We are coming near reality
now. On the personal banking side, what progress has been made
since our predecessor's report in making it easier for customers
to transfer current accounts between banks? What proportion of
your personal and business customers typically switch to another
banking service provider each year? What attracts new customers
to you, in the light of your remarks about the different situation
now from three years ago. Can you give us an insight into that?
(Mr Crosby) What you have now is the automated switching
system and all of us are delivering the requisite support and
data as part of that switching system within the five days to
a very high percentagein the high 90s or 100 per cent in
every case. Therefore the issue in terms of transferring current
accounts centres now much more around the direct debit providers,
the utilities who are now more responsible for the delays. The
delays are not enormous but they damage the perception the customers
have that it is easy to move. That is the thing which is really
important. It has come a long way.

317. What proportion of your customers typically
switch now?
(Mr Crosby) In terms of leaving us or coming to us?

318. Both.
(Mr Crosby) I will have to turn to a colleague for
the leaving statistic and I will get it for you. In terms of customers
joining us, I would say about half the 600,000 we took last year
were transfers from other banks.
(Mr Targett) We typically lose about 5 per cent of
our customers and we are seeing similar statistics on the way
in terms of new customers. We clearly want to be competitive on
price, but it is not the only determinant. In terms of attracting
new customers, we very much look at relationship management and
lots of software which can help people manage their business and
tailor their products to their needs as being as important as
price. We try to differentiate that way because otherwise we cannot
compete.
(Mr Harley) Inbound switching is about 25 per cent
of the new customers. Outbound low single figures of percentage.

319. What rates do each of you offer on the
current accounts for personal customers? Are there any strings
attached?
(Mr Harley) We offer a choice to our customers depending
on their behaviour.